For students facing the repayment of student loans, there are now new options available. Due to the Higher Education Reconciliation Act of 2005, the two types of Stafford Student Loans are required to change to have similar repayment plans.
The major difference in the two Stafford Student Loan programs — the William D. Ford Federal Direct Loan Program and the Federal Family Education Loan Program, is the source of funding.
“For the FFEL Program, the lender is a bank, credit union or other participating private lender and for the Direct Loan Program, the lender is the U.S. Department of Education,” said Joe Aiello, director of External Communications for Federal Student Aid. “Whether you receive a Stafford Loan through the FFEL Program or the Direct Loan Program depends on which program the school you attend participates in.”
Virginia Tech uses the Direct Loan Program to direct students with their repayments. There are four types of repayment options under the Direct Loan Program: the Standard Repayment Plan, the Extended Repayment Plan, the Graduated Repayment Plan and the Income Contingent Repayment Plan.
The Standard Repayment Plan is a fixed payment every month of at least $50 for 10 years, whereas the Extended Repayment Plan is a paid back in 12 to 30 years. The Graduated Repayment Plan starts off at a lower amount and increases, usually every two years, and lasts for 12 to 30 years. The Income Contingent Repayment Plan is based on family size, annual income and amount of direct loans.
Kaitlin Bourne, a freshman math major, will use the Standard Repayment option to pay back her loans.
“I want to have a fixed amount so I know exactly what I have to pay each month and don’t have to worry about any increases or interest,” said Bourne.
The Higher Education Reconciliation Act requires the Direct Loan Program have the same options as the FFEL Program, except that the Direct Loan Program will continue to offer an Income Contingent Repayment Plan and the FFEL Program will keep its existing Income Sensitive Repayment Plan.
This is not the only difference in repayment plans.
“Additionally, forgiveness waivers will be expanded for teaching service and there will be a new three-year deferment for active service in conflict,” said Barry Simmons, director of the office of university scholarships and financial aid. “The direct loan consolidation program is also now available to family loan borrowers also under these changes.”
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